A VAT refund is not guaranteed to arrive as cash. ZATCA has always had the power to offset VAT credits against other outstanding VAT liabilities. The April 2025 amendments materially expanded that power: ZATCA can now offset VAT refunds against any tax, penalty, or amount due under any law it supervises — including zakat, excise tax, and customs. For groups with multi-tax obligations, the offset power is now a comprehensive cross-tax netting mechanism that must be factored into cash flow planning.
The Offset Power: Before and After April 2025
The offset power is grounded in Article 69(5) of the Implementing Regulations. The pre-amendment version gave ZATCA the ability to offset excess tax held in a taxable person’s VAT account against taxes, penalties or any other amounts due to the Authority, or to withhold payment pending resolution of outstanding assessments in respect of other taxes.
The April 2025 amendment to Article 69(5) rewrote this in clearer and broader terms:
ZATCA may set off the amounts due to be refunded to the taxable person against any tax, penalty, or other amounts due to ZATCA under any other law supervised by ZATCA. ZATCA may also withhold the amount until a resolution is reached regarding any outstanding assessments issued against the taxable person.
The phrase “any other law supervised by ZATCA” is the critical expansion. ZATCA supervises not only VAT but also zakat, excise tax, customs duties, and real estate transaction tax. A VAT refund of SAR 10 million can now be offset in full against outstanding zakat assessments, pending excise tax liabilities, or disputed customs duties — without any of those liabilities needing to be finally determined as long as they are “outstanding assessments.”
Cross-Tax Offset: What It Means in Practice
| VAT Credit Due | ZATCA Can Now Offset Against |
|---|---|
| VAT refund claim for any period | Outstanding zakat assessments or underpayments |
| VAT refund claim for any period | Excise tax liabilities on tobacco, soft drinks, energy drinks |
| VAT refund claim for any period | Customs duties assessed or in dispute |
| VAT refund claim for any period | Real estate transaction tax obligations |
| VAT refund claim for any period | Penalties and fines under any ZATCA-supervised law |
ZATCA must notify the taxable person where it carries out an offset. But notification is after the fact — the offset occurs, and then ZATCA informs the business. There is no prior consultation or advance notice requirement in the provision as amended.
A Saudi manufacturer has a VAT refund of SAR 8 million pending from a capital-intensive expansion project. It also has an outstanding zakat assessment from a prior year of SAR 5 million, which it is disputing. The manufacturer expects to receive SAR 8 million in cash and plans to deploy it for the next investment phase.
Under the amended Article 69(5), ZATCA may offset the SAR 5 million zakat assessment — even though it is disputed and pending resolution — against the VAT refund. The manufacturer receives SAR 3 million instead of SAR 8 million. Cash flow planning based on a full VAT refund while a cross-tax dispute is unresolved is now materially riskier than it was before April 2025.
Withholding Pending Assessment Resolution
The second limb of the amended Article 69(5) gives ZATCA the power to withhold a refund amount entirely — pending the resolution of outstanding assessments issued against the taxable person.
This means a VAT refund can be held in limbo indefinitely while a separate tax dispute is resolved through the appeal process. For businesses with live assessment disputes, the refund may not be released until the dispute concludes — which, depending on the complexity of the appeal, could be months or years.
A business that receives a ZATCA assessment it intends to appeal is in a difficult position: the appeal process takes time, and during that time, any pending VAT refund may be withheld. This creates a practical cash flow penalty for exercising the legitimate right to appeal. Businesses should factor this into their dispute resolution strategy — particularly for large refund positions where the withheld amount has material cash flow consequences.
The Carryforward Alternative
Article 69(6) confirms that where the taxable person does not request a cash refund, excess VAT credit carries forward automatically in the VAT account. This credit offset future output tax liabilities — reducing each period’s net payment until the credit is consumed.
For businesses in a net payment position overall — where output tax consistently exceeds input tax — the carryforward is effectively consumed against future periods rather than recovered as cash. For businesses in a structural refund position (exporters, capital-intensive businesses), the credit will build unless actively claimed.
The carryforward approach avoids the offset and withholding risks of a formal refund claim — but it also defers the cash recovery indefinitely if the business does not regularly generate output tax to consume the credit. The choice between claiming a refund and carrying forward depends on the business’s tax position and its cross-tax liability profile.
- The April 2025 amendment to Article 69(5) expanded ZATCA’s offset power from VAT-only liabilities to any tax, penalty, or amount due under any law supervised by ZATCA — including zakat, excise, customs, and RETT.
- ZATCA must notify the taxable person after carrying out an offset, but there is no advance consultation requirement. Offsets occur first; notification follows.
- ZATCA may also withhold a refund entirely pending resolution of any outstanding assessments — regardless of the tax type. A live dispute on any ZATCA-supervised tax can block a VAT cash refund.
- Businesses with multi-tax ZATCA obligations must assess their full cross-tax position before planning cash flow around a pending VAT refund. The refund may be offset or withheld.
- Groups with disputed zakat, excise, or customs assessments should factor those disputes into their VAT refund cash flow projections under the expanded offset framework.
- The carryforward alternative — where excess credit is applied against future output tax liabilities — avoids the offset and withholding risks but also defers cash recovery. The right choice depends on the business’s tax position and cross-tax exposure.
This article is for informational purposes only and does not constitute legal or tax advice. Regulations referenced are based on ZATCA publications current at time of writing. Always verify with a qualified Saudi tax professional for your specific circumstances.